Asia Bond Monitor - June 2014

The Asia Bond Monitor reviews recent developments in East Asian local currency bond markets along with the outlook, risks, and policy options. This issue includes a section on the developments and challenges in Kazakhstan's bond market.

Emerging East Asian local currency (LCY) bond markets have regained their bounce as bond yields have fallen for most markets in recent months, shrugging off the impact of the tapering of asset purchases by the United States Federal Reserve. As economic conditions in the US point to a recovery, tapering is expected to proceed as planned. This may result in tighter liquidity conditions for the region’s bond markets in the coming months.

Risks to the region’s LCY bond markets have eased as investors’ risk appetite returns. The risks to the region’s outlook include

a potential slowdown in the People’s Republic of China’s (PRC) economy;

market turmoil generated by Federal Reserve tapering and uncertainty over the timing of its policy rate hike; and

volatile capital flows that might arise should the European Central Bank address the potential threat of deflation in the eurozone.

Bond Market in Kazakhstan—Developments and Challenges

Kazakhstan’s LCY bond market has grown at a rapid pace from only $15.8 billion at end-2006 to $55.2 billion at end-March 2014. In contrast to emerging East Asia, where government bond markets tend to be bigger, Kazakhstan’s corporate sector dominates its bond market, accounting for nearly two-thirds of total LCY bonds at end-March.

The current challenges in Kazakhstan’s LCY bond market include the high costs of issuing bonds, the lack of a liquid secondary market, and underdeveloped bond market infrastructure. At the same time, there is strong interest among the public and private sectors in further developing the sukuk (Islamic bond) market in Kazakhstan and in promoting bonds as an alternative source of funding for companies.

About the Asia Bond Monitor

This publication reviews recent developments in East Asian local currency bond markets along with the outlook, risks, and policy options. It covers the 10 members of the Association of Southeast Asian Nations plus the People’s Republic of China; Hong Kong, China; and the Republic of Korea.

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